DailyFinance.comhttp://www.dailyfinance.comDailyFinance.comhttp://o.aolcdn.com/os/df/2013/img/2-dailyfinance_logo_m.pngDailyFinance.comhttp://www.dailyfinance.comen-usCopyright 2015 Weblogs, Inc. The contents of this feed are available for non-commercial use only.Blogsmith http://www.blogsmith.com/The End of an Era: Steve Jobs Resigns as Apple CEOhttp://www.dailyfinance.com/2011/08/24/the-end-of-an-era-steve-jobs-resigns-as-apple-ceo/http://www.dailyfinance.com/2011/08/24/the-end-of-an-era-steve-jobs-resigns-as-apple-ceo/http://www.dailyfinance.com/2011/08/24/the-end-of-an-era-steve-jobs-resigns-as-apple-ceo/#commentsFiled under: Investing

The news crossed the business wires at 6:34 p.m. today: Steve Jobs is resigning from Apple (NAS: AAPL) . The resignation letter was brief and offered little additional explanation:

To the Apple Board of Directors and the Apple Community:

I have always said if there ever came a day when I could no longer meet my duties and expectations as Apple's CEO, I would be the first to let you know. Unfortunately, that day has come.

I hereby resign as CEO of Apple. I would like to serve, if the Board sees fit, as Chairman of the Board, director and Apple employee.

As far as my successor goes, I strongly recommend that we execute our succession plan and name Tim Cook as CEO of Apple.

I believe Apple's brightest and most innovative days are ahead of it. And I look forward to watching and contributing to its success in a new role.

I have made some of the best friends of my life at Apple, and I thank you all for the many years of being able to work alongside you.

Steve

While a specific reason for his resignation wasn't given, the most likely culprit is his continuing health battles. In January of this year, Jobs took another leave of absence to focus on his health. It wasn't the first time Jobs had medical problems; an earlier medical leave in 2009 was later revealed to be related to a liver transplant. Since that time, rumors have swirled as to the severity of his medical situation, but the resignation today confirms Jobs' health is bad enough that he no longer feels capable of serving as CEO.

Of course, the question from investors now turns to who will run Apple. Apple's rise to becoming the world's largest company has been breathtaking. The chart below shows the speed with which Apple caught up to not only technology king Microsoft (NAS: MSFT) , but later even ExxonMobil (NYS: XOM) to become the world's largest company.

Source: Capital IQ, a division of Standard & Poor's.

Apple will be left in capable hands. Steve Jobs' request that Tim Cook lead the company isn't unexpected. Cook has served as COO since 2007 and has long been lauded for his ability to manage Apple's booming supply chain. Cook's organizational expertise is well-enough regarded that AMD (NYS: AMD) tried tapping him to lead the company recently. Not surprisingly, he turned this position down.

However, Cook has long been thought of as only a piece of a triumvirate that worked behind the scenes to ensure Steve Jobs' visions made it to market and were commercial blockbusters. The other two members of the triumvirate are Jonthan Ive and Phil Schiller. Ive is the principal designer at Apple, and has been responsible for the design of every hit product since Apple began its meteoric rise at the start of the last decade. Schiller is the company's marketing leader and is credited with helping establish the unique brand identity of Apple products.

When Cook becomes the new leader, he'll lean heavily on these other figures. Also, while Jobs will no longer be CEO, as chairman of the board, his influence still will be widely felt within the walls of Apple's Cupertino headquarters.

Still, it can't be stressed enough that while other executives at the company are rare talents, replacing the vision of Steve Jobs will be a challenge. The existing management should be well-suited to shepherding already-successful product lines like the iPhone and iPad to continued growth. Ive can continue designing great next-generation products while Cook worries about the operational side and plots how Apple attacks new market opportunities for those products (such as additional distribution in China).

Apple also faces enormous challenges and opportunities in the coming years. Android has aggressively stolen market share in the mobile market and Apple will need to continue defending its turf. Apple still commands nearly two-thirds of total mobile profits -- i.e., the important thing -- but mobile challenges will continue to evolve and grow. For example, Google (NAS: GOOG) recently announced its intention to acquire Motorola Mobility (NYS: MMI) and aims to get more aggressive in marketing its own hardware. There are also reports that Amazon.com (NAS: AMZN) plans on releasing a tablet at a very competitive price point.

On the opportunities side, Apple not only has massive growth in front of it in emerging markets -- sales to China grew sixfold last quarter -- but can also look to expanding its offerings to new areas. An obvious idea would be a new Apple TV box -- or even an Apple-branded TV itself -- that would bring apps and Apple's media ecosystem further into the living room.

While it'll never be easy seeing a visionary leader like Jobs go, Apple has strong momentum in its existing categories and its biggest trial in the years ahead looks to be how best to leverage and expand iOS into new markets and new categories. Steve Jobs' day-to-day presence at Apple will be missed, but the company has become much more than the Great Turtlenecked One.

To keep tabs on how the post-Steve-Jobs Apple moves into the future, make sure to add the company to our free My Watchlist feature. It'll deliver up-to-date news and analysis as the company navigates these critical times.

Update: Apple became the most valuable company Wednesday as its stock closed at $363.69, giving it a market capitalization of $337 billion. Exxon shares fell to $68.03. That means the oil giant now has a market cap of $331 billion.
Tuesday, Apple (AAPL) briefly passed ExxonMobil (XOM) to become the most valuable company in the world. The news sent shockwaves through the financial world: Here was a company that sells high-end discretionary electronics overtaking the consummate king of American industry -- a corporation that reigns over $100 oil and regularly sees more than $10 billion in profits on a quarterly basis.

However, the changing of the guard from Exxon to Apple is part of a larger trend. During the past four years, large technology companies have risen in prominence while other industries like energy and banking have fallen out of favor.

Remember, four years ago was a time of phony banking profits and rising oil prices. Not surprisingly, Exxon was far and away the largest company, while General Electric, Bank of America, and Citigroup all were still riding the housing bubble to record profits.

Of course, as we know now, none of these situations was built to last, and that pedestal quickly crumbled.

...This Is Now

After the crash in housing and an oil price roller-coaster ride, we find today's landscape. Out are the General Electrics, Citigroups, and Bank of Americas of the world. In their place sit Apple, IBM (IBM), and Google (GOOG). Exxon still tenuously holds the top spot (as of yesterday's close), but will likely drop below Apple in coming weeks.

The shuffling list of super-huge stocks is just that: a list. A more holistic look at the rankings reveals three more practical takeaways for investors:

1. America is still No. 1 in technology: As much as Silicon Valley gets derided for constant bubbles and crazy business ideas, there are few industries in which America is as dominant as technology. The reason for this is simple: Our technology firms are great at creating the underlying platforms on which other technologies are built. That might sound complex, but it's a simple idea. Windows is the basic operating system for computers. Google is the main search engine used by most the world. Apple controls the most profitable operating system for mobile devices.

All these companies hold the most basic building blocks of technology, so it's extremely difficult to come up with new technologies that make them obsolete.

2. If you're afraid of turbulent markets, buy dependable brands: Right now, we're in a market where up and down swings of 5% are common and there's a distinct whiff of panic in the air. If you're looking for safer plays that still have potential to gain if the market runs up, look no further than large companies selling consumer staples.

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Companies such as Coca-Cola (KO), Wal-Mart, and even Procter & Gamble aren't flashy names, but all have outperformed the market in the past four shaky years. Unlike other names, such as Exxon or big banks, they're not at the whim of external factors like energy prices or financial markets that can swing wildly. Instead, they sell products that consumers keep scooping up even in tough economic conditions. Best of all, they have established international presences in foreign markets that can keep growing even if the U.S. stagnates. Which leads to a final takeaway from the market-cap shuffle...

3. Growth overseas is good for brands, bad for the domestic jobs outlook: The 2008 recession caused a steep drop-off in jobs and the unemployment rate currently sits at 9.1%. Coming off a record earnings season from corporate America, you might expect that figure to keep dropping in spite of fears of a worsening general economy. Don't count on it.

The problem is that American companies are quickly becoming global companies. More than 50% of earnings growth in the S&P 500 is from abroad. That means while American companies might be posting record earnings, they're pouring resources back into the areas where they're growing, which is outside the United States. That American brands are so enduring abroad and can be so successful in foreign markets is great news for investors, but it's also sour grapes for Americans looking for jobs.

Eric Bleeker is the technology editor for Fool.com. You can follow his Twitter @bleekertech. Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of Coca-Cola, Johnson & Johnson, Microsoft, International Business Machines, Berkshire Hathaway, Wal-Mart Stores, and Google. The Fool owns shares of and has opened a short position on Bank of America.

Only a bit more than a year after it passed Microsoft (NAS: MSFT) as the most valuable company in technology, Apple (NAS: AAPL) has its sights set on a new target: the most valuable company in the world.

In the middle of the day Tuesday, Apple briefly passed ExxonMobil (NYS: XOM) to become the world's most valuable company. Afterward, Apple slipped back a bit, but make no mistake -- we witnessed the passing of the torch today.

For Apple, today's news is a long way from the bottom. In late 2000, Apple was worth just short of $5 billion, while Exxon was worth more than $300 billion, and Microsoft sat at a value of more than $360 billion. Despite its explosive growth since then, Apple still would've had to grow 56% to reach ExxonMobil's size just a year and a half ago, as this chart from last March shows:

Source: Capital IQ, a division of Standard & Poor's.

However, since then Apple hasn't just continued to sell enough iPhones, at fat enough margins, to command nearly two-thirds of all mobile phone profits. It's also released the iPad to a world skeptical of the need for what basically amounted to a larger iPhone.

Brushing off the market carnageThe ascent of a new stock market king comes amid Wall Street panic. In the past week alone, oil fell nearly 18%, as investors feared a double-dip recession would curtail demand. That explains ExxonMobil's 12% plunge during that time. However, while it has seen its own 6% drop, Apple has hung on far better than either Exxon or the general market during the past week's panic.

That might not seem fair to investors. After all, Apple sells premium-priced products, which simple logic dictates should struggle in a double-dip recession. If investors are fretting over that very scenario, and sending markets crashing in the process, shouldn't Apple be falling more than other stocks instead of swiftly rebounding ahead of the market?

Brushing off consumer fearsNo, it shouldn't. You can largely thank the unique business model of the iPhone, and smartphones in general, for that resilience. Apple sells iPhones to carriers at an average price that exceeds $650 per phone. Competitors such as HTC might sell their phones to carriers at a price around $450, but in the end, carriers subsidize both models -- meaning they effectively eat part of the cost of the phone -- and are sold at relatively similar prices. In the United States, top-end smartphones generally sell at about $200 after contract. This artificial market, where phones are subsidized and consumers generally don't realize the full cost of their purchases, allows Apple to collect those amazing profit margins on its phones.

Another economic downturn could hurt Apple's other product lines, like Macs and iPads, which aren't as heavily subsidized. It might even force consumers to reevaluate their pricey data plans. But on the whole, the iPhone's driving Apple's bottom line. It now contributes 47% of Apple's sales, and an even greater proportion of its profits. With the iPhone holding up better than expected even as the economy sputters, Apple's continuing growth looks like it's in good shape.

But wait, there's more good news!One other area is driving Apple's results: booming international sales. That's a common trend, especially in technology; Intel (NAS: INTC) credited growth in markets like China and Brazil for its ability to crush analyst estimates last quarter.

Once again, analysts lowballed Apple's ability to succeed abroad. Consumers in these markets don't have a lot of money. In China, a new unlocked iPhone would eat up 49.7% of the average citizen's annual household income. Also, while contracts that subsidize phone costs are common in developed markets, in emerging markets it's more common for phones to be sold at their far higher actual selling price.

However, against all these obstacles, Apple has seen demand boom across the world, with the highest growth seen in developing Asian markets.

Market

Sales Growth Between 2005 and 2010

Profit Growth Between 2005 and 2010

Americas

268%

682%

Europe, Africa, and Middle East

508%

1,518%

Japan

331%

1,156%

Asia-Pacific

727%

2,991%

Source: Capital IQ, a division of Standard & Poor's. Retail sales are distributed in proportion to general sales level. Accounting for regional differences in retail store sales, end sales may differ slightly.

Just last quarter alone, Apple was proud to brag that sales to Greater China had grown sixfold. Last quarter, sales to Greater China totaled a sizable $3.8 billion. Even if American and European growth fizzles off, Apple should still see continuing growth in emerging markets.

The new king to staySo even as the market crashes around us, Apple's growth story looks surprisingly strong. While investors might be afraid to buy Apple, based on either its sheer size or their own fear that another recession could quickly sap its growth, the company's future looks surprisingly strong. Trading at just 14 times earnings, with plenty of growth ahead of it and $76 billion in the bank, Apple still looks like a compelling deal. The crown atop Steve Jobs' head appears perfectly fitted.

To keep up to date on any companies listed above, make sure to add them to our free My Watchlist service. It'll provide you with news and analysis on all your favorite companies.

Microsoft (MSFT) delivers blowout earnings, and shares open lower the following morning.

If you spotted the fact that the reaction to the event is exactly the opposite of what's expected, congratulations. You're well on your way to a perfect score on the English section of the SAT, if you ever decide to retake high school.

It's not that Microsoft is off a tremendous amount; its shares actually turned higher in early trading. However, it's a sign of a larger trend in technology earnings -- companies continuing to beat high expectations and their share prices subsequently flat lining, or worse, falling off a cliff.

Stodgy old tech titans like Microsoft and Intel (INTC) have been counted out as dinosaurs by many investors, yet each managed to easily surpass earnings estimates. The reaction: The market greeted them with a shrug the next day.

But before you dismiss Wall Street's muted reaction, consider this: Microsoft's shares aren't getting any love today because Wall Street has finally caught on to the company's game.

Microsoft Earnings Smoke and Mirrors

Here are the specific figures on Microsoft's earnings. Revenue hit $17.4 billion, an 8% jump over the previous year. Earnings were a whole different story; they bested the previous year's showing by a whopping 30%.

Great figures, right? Well, don't get ahead of yourself. For one thing, while Microsoft's earnings looked great, there's a component of smoke and mirrors involved. Namely, its operating income (calculated before interest and taxes) only increased 4% year-over-year. To Wall Street's credit, it's finally catching on to a game that's played by technology companies around the world.

Hey, That's a Nifty Tax Trick

The game is this: Make money overseas in areas with lower tax rates, and then avoid bringing the cash home to the United States. By bringing profits home, these companies would be subject to U.S. taxes that reach 35%. It's a nifty game because these companies get to report higher profits and get the double bonus of touting their huge cash piles. Don't you love a two-for-one deal?!

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However, this is also a dangerous game. For one, many investors immediately give these companies credit for full cash on their books. However, since the companies don't want to trigger the huge taxes associated with bringing the cash home, it can't easily be used to do things that benefit shareholders, like pay dividends.

It isn't just Microsoft that's working overtime to avoid taxes; a raft of other U.S. companies are playing the same game. Intel's earnings also benefited tremendously from -- you guessed it -- a much lower tax rate.

Secondly, while this issue gets into very complex tax issues, it's extremelydifficult to use the cash to make acquisitions in the United States without having to pay heavy taxes in the process. The end result is that companies are more inclined to make acquisitions abroad, where they're not subject to additional taxation.

Did you notice the fine print in Microsoft's recent $8.5 billion nonsensical acquisition of Skype? Microsoft managed to save billions of dollars by using foreign profits to buy Skype, which has its corporate headquarters in Luxembourg.

Microsoft made this bone-headed deal not because it was the best fit available for the company. They made the deal because it was a tax-efficient shot in the arm. If you're a Microsoft investor, this should scare you.

The Bottom Line

I don't begrudge these international titans for working within our tax system to reduce their payments. However, as an investor, I also don't give them credit for huge profit growth when their actual operating profits before taxes are showing anemic growth rates.

As ridiculous as the muted reaction to Microsoft's blowout quarter might look, it makes complete sense.

Motley Fool analyst Eric Bleeker owns shares of no companies listed above. The Motley Fool owns shares of Microsoft and owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Intel and Microsoft, as well as creating a diagonal call position in Intel.

Watching the analyst figures inch upward ahead of impending Apple (AAPL) earnings has become one of technology investing's best inside jokes. If you regularly follow Apple, you know that despite analysts' last-minute efforts to nudge up earnings, Apple always makes their revisions look laughable.

In the previous four quarters before today's earnings, Apple's smallest earnings beat had it soaring past analysts' estimates by 13%. Last quarter, Apple outdid itself with a mammoth 19% earnings beat. When it comes to Apple, only the best is expected. Meeting expectations isn't good enough; it needs to crush whatever bar the investing world had set for it. Luckily enough for Apple, it's on a decade-long home-run streak.

The Babe Ruth of Technology

And Apple delivered its most recent home run this afternoon. To be fair to Apple, "home run" doesn't even do the quarter justice. The company delivered earnings that beat last year by 125%, and sales that did so by 82%. And that was without the release of a new iPhone during the quarter, which had caused worrywart analysts to fret that competitors would take over gobs of market share.

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iPhone sales hit 20.3 million, a growth rate of 142% over the year-ago period. The company also sold 9.25 million iPads, an even larger 183% increase above last year's total. In both cases, the figures far exceeded even the most optimistic estimates analysts could provide.

This quarter wasn't just an earnings beat; it was a "make sure you're standing up so you don't fall out of your chair" event. If Apple made the analysts who follow it look behind the curve in past quarters, they made them look downright clueless today.

So how does Apple continue defying the laws of gravity? How does it keep growing sales at 82% despite having higher sales than iconic tech peers IBM (IBM) and Microsoft (MSFT), two companies that are satisfied to see sales growth eclipse double digits?

Here are three key factors of Apple's recent success.

The First Factor: Verizon

One of the key drivers this quarter has been Apple's decision to end its exclusive iPhone contract with AT&T (T) and begin selling the iPhone on Verizon (VZ) within the United States. Adding Verizon effectively doubled the amount of stateside wireless subscribers Apple could sell to.

However, we didn't need Apple's quarterly report illustrating how its push into Verizon has halted the rapid climb of its key mobile rival -- Google's (GOOG) Android - to see how much momentum Apple has picked up from Android recently. That's because independent researchers have continually shown the iPhone taking back share in recent months. Here's a snapshot from researcher Nielsen of the iPhone's recent growth. Note how its market share took off again after the Verizon iPhone was introduced in February.

The Second Factor: Ravenous Worldwide Demand

American success is nice, but the broader takeaway is that the iPhone has turned into a global phenomenon. Between 2005 and 2010, Apple's U.S. sales shrank from 59% of its total down to 44%. That growth in international sales is largely thanks to the iPhone.

So although growth at Verizon looks to be a huge win for the company, it needs immensely strong overseas demand to hit the kind of iPhone growth rates -- 142% last quarter -- that it's seeing. In recent quarters, that growth has been coming from some unexpected places.

For example, even though a new unlocked iPhone is 49.7% of the average Chinese citizen's household income, Apple is seeing exploding demand in the country. Headline economic figures such as per capita GDP suggest that emerging-market citizens are poor on average, but there's also a huge disparity between the average citizen and the educated upper class. And those with money are buying Apple products hand over fist in a trend that should continue in the coming quarters.

The Third Factors: The iPad

Finally, Apple's amazing quarter was also a function of iPad demand. In April, Apple delivered heady 92% growth and investors cheered, but the sole blemish was tepid iPad sales. Apple only moved 4.6 million iPads, which fell short of expectations.

However, Apple's last earnings release also came at a time when the new iPad had just been released and stock-outs were common. The current quarter's massive iPad sales total -- 9.2 million -- shows a figure more in line with how popular the iPad is when supply of Apple's newest wunderkind matches the insatiable demand of consumers across the world.

Adding It All Up

Every quarter it feels as though Apple is approaching a high-water mark, but the company just keeps on delivering. Even after the inevitable bump in its share price tomorrow, Apple still looks cheap when you consider its amazing worldwide opportunity to keep driving iProducts at high growth rates for years to come. In the end, Apple's a $600 stock masquerading at $400. Take this deal while you can.

]]>apple earningsapple profitsApple revenueapple verizon iphoneapple vs googleAppleEarningsAppleProfitsAppleRevenueAppleVerizonIphoneAppleVsGoogleIpad salesIpadSalesMotley FoolMotleyFoolEric Bleeker, The Motley FoolTue, 19 Jul 2011 19:00:00 ESTSay Goodbye to IBM's American Success Storyhttp://www.dailyfinance.com/2011/07/19/say-goodbye-to-ibms-american-success-story/http://www.dailyfinance.com/2011/07/19/say-goodbye-to-ibms-american-success-story/http://www.dailyfinance.com/2011/07/19/say-goodbye-to-ibms-american-success-story/#commentsFiled under: IBM, Microsoft, AppleAcross its storied 100-year history, IBM (IBM) has been a textbook example of American innovation and technological superiority. While the young whippersnappers may grab all the accolades, consider that IBM still has the third largest market cap among technology companies after Apple (AAPL) and Microsoft (MSFT), and has received more U.S. patents per year than any other firm for 18 years straight.

But if IBM's earnings -- which were released last night -- highlight one thing, it's that Big Blue's days of being an American success story are over.

Sounds Dire? Don't Worry, It's Not.

IBM's past 100 years were not without faults, and the company still faces its fair share of risks moving forward. But IBM has learned from many of the mistakes made during the nadir of the early '90s and is on a high note right now.

In its first 100 years, IBM soldiered forward by dominating in America. During its next 100 years, IBM will be a story of global success.

Management has a laser-like focus on a bold plan to double profits by 2015. A big part of it depends on establishing a strong position in emerging markets.

While developed countries like Italy, Japan, and even the U.S. continue to extract themselves from the financial mess of 2008, developing countries like China, Brazil, India, and Russia are growing by leaps and bounds. While it's not always easy to profit from the tantalizing growth in these countries, Big Blue is finding a way.

To the Earnings!

The earnings headline for IBM is this: The company posted strong sales, and earnings tagged along nicely. Quarterly revenue was $26.7 billion, soundly beating analyst estimates of $25.4 billion. On the earnings front, IBM posted adjusted earnings of $3.09 per share. The earnings performance was strong enough that IBM raised its full-year operating earnings guidance to $13.25, a full $0.25 ahead of the level it targeted at the beginning of the year.

IBM continued to fire on all cylinders in the United States. That's important because the U.S. is still Big Blue's largest market. Within this home market, IBM notched a respectable 6% sales growth over last year.

However, as other developed countries like Japan and Europe struggled, up-and-coming emerging markets picked up the slack.

Best of all, the backlog of contracts for future work IBM has signed keeps getting bigger, and the increase is concentrated in fast-growing emerging markets. IBM now has 20% of its backlog in emerging markets, and growth market backlog is up 50% in the past two years. That growth rate in IBM's backlog of contracts shows that high growth rates in emerging markets isn't a passing trend. Overall, IBM wants 30% of its sales to come from these emerging markets by 2015.

Don't let the Currency Distract You

IBM's quarter won't offer investors many more clues. It was solid, though heavily aided by strong currency tailwinds that made results look better than their reality. However, what investors need to focus on with IBM is the long-term trend, of which this quarter is one small piece.

In 2010, IBM embarked on its aforementioned plan to double profits, reaching $20 per share by 2015. The plan was extremely ambitious, as IBM is a sprawling corporate giant: It's simply far too large to achieve outsized sales gains.

However, IBM is also the consummate professional of technology -- the big brother of an industry full of reckless showmen who hoard shareholder capital, make wild accusations, and engage in petty feuds with one another.

The IBM Way of the Future

As the antithesis to these ills that attend technology firms, IBM created a plan that focuses on very un-technology areas like prudent share buybacks and acquisitions in higher-margin software and services, targeting a few key technologies like business analytics and cloud computing, and growth in emerging markets to hit modest revenue gains while delivering outsized earnings gains to investors.

I know -- such a notion of disciplined financial management in technology is practically heresy, but it's the IBM way. Compared with those of its peers, IBM's MO is both painstakingly boring and brilliant. So, if you're confused by investors cheering wildly as IBM raises its operating earnings target for the year by a mere 2%, while other technology high-flyers wildly rise and fall, it's because IBM's consistency is to be applauded.

We cheer because IBM was prescient enough to move aggressively into software and services while pawning off capital-intensive boondoggles like PCs on un-witting peers.

We cheer because the company is so excellently capturing the emerging market opportunity.

We cheer because IBM doesn't need to blow out earnings; merely hitting its target of doubling profits by 2015 would be a monumental achievement.

Google(GOOG) increasingly finds itself at the center of our digital lives. Besides its sprawling Internet empire, its mobile operating system -- Android -- is quickly becoming the Windows of mobile devices. (Since launching in late 2008, Android has grown its share to 40% of all smartphones this year.) And now, thanks to the launch of its ambitious Google+ service, it aims to take on Facebook in the social networking space.

So it might shock you to learn that analysts had been rushing to trim down their estimates for Google's earnings in recent months.

Well, That Was a Mistake

Last night Google stepped up to the plate and delivered second-quarter earnings good enough to send its shares skyrocketing nearly 13% in after-hours trading.

Excluding stock-compensation and certain income tax effects, the company earned $8.74 per share, significantly ahead of analyst projections of $7.86 in profits per share. Google's sales total also put the pros to shame: After excluding costs paid to partner sites, the search giant had sales of $6.82 billion, which trounced pre-earnings projections of $6.55 billion.

Those results were far ahead of what even the most starry-eyed analyst projected. So what accounts for all the pessimism?

Google's Loose Purse Strings

The main concern surrounding Google's quarter was that its costs were spiraling out of control. All these forays into social media and mobile devices cost quite a bit and don't necessarily offer any immediate revenue.

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Thanks to hiring and new projects, back in April the company issued first-quarter earnings that saw operating expenses climb 82%. In this most recent quarter, they rose 49% compared with the same quarter last year. That level of increased spending cut far deeper into profits than Wall Street expected, and the stock tanked the next day. Heading into last night's report, a number of analysts feared Google's free-spending ways would lead to another earnings whiff.

In addition to cost controls, the amount of money the company collects whenever users click on an ad increased 6% over last quarter. It's a pretty simple equation: lower than expected costs + surprisingly high revenue = huge earnings beat.

Google's Hidden Opportunity

Moving forward, Google's earnings could continue to prove lumpy. The company will continue hiring new engineers left and right and investing in new initiatives that don't always have an immediate payback. That can create quarters in which Google either wildly exceeds or falls significantly short of Wall Street's quarterly profit estimates. However, that's where opportunity lies for investors.

Many investors simply don't understand Google because of the unique way it operates. Take Google's popular Android operating system, which is spreading like wildfire across the mobile world. While Android may be immensely popular, the company gives it away for free, so no direct sales are recorded from its success.

That way of thinking is completely new and foreign to the investing world. Microsoft (MSFT), the titan of operating systems on PCs, has always made money by charging a fee for Windows. Charging a set amount of money for a product is the first thing you learn when setting up your first lemonade stand. You can't just give the stuff away free!

A New Kind of Lemonade Stand

But Google is different. In the long run it actually profits more by giving away Android free of charge. The rationale is pretty simple: Android's just another means of making its search better. Google's not only looking for more people to plug new things into its search bar; it's also looking for better results that advertisers pay more for.

By giving away Android, Google promotes more people buying smartphones. Suddenly, instead of just searching while on your desk at work or home, you're also searching on the go.

That creates more searches.

Also, Google now knows your location, so it can better incorporate a local restaurant when you search for where to eat that night.

That creates better results.

That's part of the reason Google increased the amount of money it collects per advertising click by 6% last quarter; it's getting smarter about how to offer advertising when people search. And here's the best part: There's still a high level of improvement to be achieved by offering more valuable searches. In the long run, initiatives like Android and Google+, which drive Wall Street crazy because they don't offer immediate profits, will contribute far more by strengthening Google's search.

So if you're looking for a way to go one up on Wall Street, look no further than Google. While Wall Street will continue focusing on its quarter-by-quarter results -- resulting in wild swings up and down after earnings -- the long-term trajectory is up. Google's a lot smarter than the "pros" following it.

Apple (AAPL) has been on fire. It just posted the most impressive quarter in its history -- a period which saw iPhone growth continue unabated and the iPad repel all tablet challengers.

Apple's stock, however, is decidedly cool at the moment -- it's actually trailing the broader market so far this year, and is trading at historically cheap levels. Just take a look at how far its P/E ratio -- the most often-used means for valuing a stock -- has sunk below its historical average.

Source: Capital IQ, a division of Standard & Poor's. Each point corresponds to a quarterly P/E average.

Apple's trading at the same P/E ratio it saw during the financial crisis, a time when chaos reigned in the market and almost all companies traded significantly below their value.

Why Apple's So Cold

Pinpointing why a stock is undervalued is an inexact science, but several factors weigh against Apple.

The company is getting BIG. Apple's market cap is now 44% more than Microsoft (MSFT) and 86% more than Google (GOOG). Investors are used to Microsoft dominating operating systems and Google dominating search. Apple's still the new big-tech player on the block, and how long can its dominance of smartphones and tablets last? Consumer electronics buyers are notoriously fickle; you're only a design flub or two away from a slide into irrelevance. Plus, with Apple this big, what funds are left to buy it?

The iPhone 5 is delayed. Typically, Apple releases new iPhone models in late June or early July. However, we're into July and Apple still hasn't taken the wraps off its next iPhone model. With a litany of very competitive Android phones consistently adding new features and looking to one-up the iPhone, the market is uneasy with the idea that no iPhone is ready for release.

The "Steve Jobs Factor." Few companies are as tied to the soul of their CEO as Apple is. With Steve Jobs in the midst of another medical leave, there are fears his condition may keep him from focusing enough attention on Apple.

How Apple Will Start Heating Up

I think all of those concerns are overblown. Yes, Apple's getting big, but that largeness is validated by its success.

Apple grew earnings by an amazing 92% last quarter. That blows away competitors like Microsoft and Google. That kind of growth for a company of Apple's size is simply unparalleled. More to the point, that growth looks to continue. Analysts expect Apple to grow by another 16% during 2012. That might not look impressive until you realize analysts always underestimate Apple's earnings. In the past four quarters, Apple has smoked earnings estimates by an average of 17%.

As for the competition, many Apple detractors like to point out Sony (SNE) as a comparable, but Apple continues building a strong software advantage. Users become wrapped up across its iTunes media ecosystem and download large numbers of apps that make them reluctant to move away from Apple once they've adopted its products.

Yes, Apple's iPhone is delayed, but now that the iPhone is on Verizon (VZ), its sales are brisk and it's picking up market share among new-phone buyers once again.

Source: Nielsen.com.

Besides, the iPhone is truly a global success story. Last quarter, Apple announced that iPhone sales had increased 250% year-over-year in China. In total, the company rang up $5 billion in sales in China alone. The next iPhone might be delayed, but with an update to iOS coming in September -- with the likely scenario that the iPhone 5 accompanies it -- Apple's smartphone machine looks to be chugging along at full speed.

As for a future without Jobs, Apple's got that covered, too. While there's no way to deny Jobs is the heart and soul of the company, he's also trained up a core group of potential successors. Jonathan Ive has been the design inspiration behind every blockbuster Apple product since the days of the iMac. Phil Schiller has been the company's marketing guru across Apple's run to the top, and Tim Cook handles the logistical end of Apple's sprawling supply chain. None of them on their own can replace Jobs, but with this team, the company is in very capable hands.

The Bottom Line

Like any other stock, Apple still faces a fair amount of risk. Currently, the company collects a majority of mobile phone profits with only a thin sliver of market share. If Apple can't keep innovating to maintain a "premium" perception, these outsized phone profits could begin to be pressured and its stock price wouldn't be far behind.

However, in terms of buying a company with fantastic growth opportunities trading at a cheap price, it's hard to find a company better-positioned than Apple. Bite into this deal while it lasts.